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Internal Revenue Service: Difference between revisions
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{{Organization | |||
|OrganizationName=Internal Revenue Service | |||
|OrganizationType=Executive Departments (Sub-organization) | |||
|Mission=The IRS serves America's taxpayers by helping them understand and meet their tax responsibilities and enforcing the law with integrity and fairness to all. It administers and enforces federal tax laws. | |||
|ParentOrganization=United States Department of the Treasury | |||
|CreationLegislation=Revenue Act of 1862 | |||
|Employees=78000 | |||
|Budget=$12.3 billion (Fiscal Year 2024) | |||
|OrganizationExecutive=Commissioner of Internal Revenue | |||
|Services=Tax collection; Taxpayer assistance; Tax law enforcement; Taxpayer education; Tax return processing | |||
|HeadquartersLocation=38.8934, -77.02702 | |||
|HeadquartersAddress=1111 Constitution Ave NW, Washington, DC 20224, USA | |||
|Website=https://www.irs.gov | |||
}} | |||
{{Short description|Revenue service of the US federal government}} | {{Short description|Revenue service of the US federal government}} | ||
{{Infobox government agency | {{Infobox government agency | ||
| agency_name = Internal Revenue Service | | agency_name = Internal Revenue Service | ||
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[[File:IRS Sign.JPG|thumb|IRS location sign at Constitution Avenue, Washington, D.C.]] | [[File:IRS Sign.JPG|thumb|IRS location sign at Constitution Avenue, Washington, D.C.]] | ||
The IRS originates from the '''Commissioner of Internal Revenue''', a federal office created in 1862 to assess the nation's first [[income tax]] to fund the | The IRS originates from the '''Commissioner of Internal Revenue''', a federal office created in 1862 to assess the nation's first [[income tax]] to fund the American Civil War. The temporary measure funded over a fifth of the Union's war expenses before being allowed to expire a decade later. In 1913, the [[Sixteenth Amendment to the United States Constitution|Sixteenth Amendment to the U.S. Constitution]] was ratified, authorizing Congress to impose a tax on income and leading to the creation of the '''Bureau of Internal Revenue'''. In 1953, the agency was renamed the Internal Revenue Service, and in subsequent decades underwent numerous reforms and reorganizations, most significantly in the 1990s. | ||
Since its establishment, the IRS has been largely responsible for collecting the revenue needed to fund the United States federal government, with the rest being funded either through the [[U.S. Customs and Border Protection]] (collecting [[Duty (tax)|duties]] and [[tariff]]s) or the [[Federal Reserve]] (purchasing [[United States Treasury security|U.S. treasuries]]).<ref>{{Cite web |last1=Faria e Castro |first1=Miguel |last2=Jordan-Wood |first2=Samuel |date=November 21, 2023 |title=The Fed's Remittances to the Treasury: Explaining the 'Deferred Asset' |url=https://www.stlouisfed.org/on-the-economy/2023/nov/fed-remittances-treasury-explaining-deferred-asset |archive-url=https://web.archive.org/web/20240327151852/https://www.stlouisfed.org/on-the-economy/2023/nov/fed-remittances-treasury-explaining-deferred-asset |archive-date=March 27, 2024 |access-date=2024-05-01 |website=www.stlouisfed.org |language=en}}</ref> The IRS faces periodic [[IRS targeting controversy|controversy]] and opposition over its methods, constitutionality, and the [[Taxation as theft|principle of taxation]] generally. In recent years, the agency has struggled with budget cuts, under-staffed workforce, outdated technology and reduced morale, all of which collectively result in the inappropriate enforcement of tax laws against [[Wealth inequality in the United States|high earners]] and large [[corporation]]s, reduced tax collection, rising [[Government budget balance|deficits]], lower [[Government spending|spending]] on important priorities, or further tax increases on compliant [[tax]]payers to compensate for lost [[revenue]].<ref>{{cite web|title=ACTC letter to Congressional-Leadership|url=https://www.actconline.org/wp-content/uploads/2014/05/ACTC-letter-to-Congressional-Leadership.pdf|website=American College Of Tax Counsel |date=July 13, 2016}}</ref><ref>{{Cite web |date=2024-06-24 |title=The Case for a Robust Attack on the Tax Gap |url=https://home.treasury.gov/news/featured-stories/the-case-for-a-robust-attack-on-the-tax-gap |access-date=2024-07-11 |website=U.S. Department of the Treasury |language=en}}</ref> Research shows that IRS audits raise revenue, both through the initial audit and indirectly by deterring future tax cheating.<ref name=":02">{{Cite report |url=http://dx.doi.org/10.3386/w31376 |title=A Welfare Analysis of Tax Audits Across the Income Distribution |last=Boning |first=William |last2=Hendren |first2=Nathaniel |date=2024 |publisher=The Quarterly Journal of Economics |last3=Sprung-Keyser |first3=Ben |last4=Stuart |first4=Ellen}}</ref> According to a 2024 study, "an additional $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue, while audits of below-median income taxpayers yield $5."<ref name=":02" /> | Since its establishment, the IRS has been largely responsible for collecting the revenue needed to fund the United States federal government, with the rest being funded either through the [[U.S. Customs and Border Protection]] (collecting [[Duty (tax)|duties]] and [[tariff]]s) or the [[Federal Reserve]] (purchasing [[United States Treasury security|U.S. treasuries]]).<ref>{{Cite web |last1=Faria e Castro |first1=Miguel |last2=Jordan-Wood |first2=Samuel |date=November 21, 2023 |title=The Fed's Remittances to the Treasury: Explaining the 'Deferred Asset' |url=https://www.stlouisfed.org/on-the-economy/2023/nov/fed-remittances-treasury-explaining-deferred-asset |archive-url=https://web.archive.org/web/20240327151852/https://www.stlouisfed.org/on-the-economy/2023/nov/fed-remittances-treasury-explaining-deferred-asset |archive-date=March 27, 2024 |access-date=2024-05-01 |website=www.stlouisfed.org |language=en}}</ref> The IRS faces periodic [[IRS targeting controversy|controversy]] and opposition over its methods, constitutionality, and the [[Taxation as theft|principle of taxation]] generally. In recent years, the agency has struggled with budget cuts, under-staffed workforce, outdated technology and reduced morale, all of which collectively result in the inappropriate enforcement of tax laws against [[Wealth inequality in the United States|high earners]] and large [[corporation]]s, reduced tax collection, rising [[Government budget balance|deficits]], lower [[Government spending|spending]] on important priorities, or further tax increases on compliant [[tax]]payers to compensate for lost [[revenue]].<ref>{{cite web|title=ACTC letter to Congressional-Leadership|url=https://www.actconline.org/wp-content/uploads/2014/05/ACTC-letter-to-Congressional-Leadership.pdf|website=American College Of Tax Counsel |date=July 13, 2016}}</ref><ref>{{Cite web |date=2024-06-24 |title=The Case for a Robust Attack on the Tax Gap |url=https://home.treasury.gov/news/featured-stories/the-case-for-a-robust-attack-on-the-tax-gap |access-date=2024-07-11 |website=U.S. Department of the Treasury |language=en}}</ref> Research shows that IRS audits raise revenue, both through the initial audit and indirectly by deterring future tax cheating.<ref name=":02">{{Cite report |url=http://dx.doi.org/10.3386/w31376 |title=A Welfare Analysis of Tax Audits Across the Income Distribution |last=Boning |first=William |last2=Hendren |first2=Nathaniel |date=2024 |publisher=The Quarterly Journal of Economics |last3=Sprung-Keyser |first3=Ben |last4=Stuart |first4=Ellen}}</ref> According to a 2024 study, "an additional $1 spent auditing taxpayers above the 90th income percentile yields more than $12 in revenue, while audits of below-median income taxpayers yield $5."<ref name=":02" /> | ||
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==History== | ==History== | ||
===American Civil War (1861–1865)=== | ===American Civil War (1861–1865)=== | ||
In July 1862, during the | In July 1862, during the American Civil War, [[President of the United States|President]] Abraham Lincoln and [[United States Congress|Congress]] passed the [[Revenue Act of 1862]], creating the office of Commissioner of Internal Revenue and enacting a temporary [[income tax]] to pay war expenses. | ||
The Revenue Act of 1862 was passed as an emergency and temporary war-time tax. It copied a relatively new British system of income taxation, instead of trade and property taxation. The first income tax was passed in 1862: | The Revenue Act of 1862 was passed as an emergency and temporary war-time tax. It copied a relatively new British system of income taxation, instead of trade and property taxation. The first income tax was passed in 1862: | ||
*The initial rate was 3% on income over $800, which exempted most wage-earners. | *The initial rate was 3% on income over $800, which exempted most wage-earners. | ||
*In 1862 the rate was 3% on income between $600 and $10,000, and 5% on income over $10,000. | *In 1862 the rate was 3% on income between $600 and $10,000, and 5% on income over $10,000. | ||
By the end of the war, 10% of | By the end of the war, 10% of Union households had paid some form of income tax, and the Union raised 21% of its war revenue through income taxes.<ref>{{cite web |url=http://www.tax.org/Museum/1861-1865.htm |title=1861–1865: The Civil War |publisher=Tax.org |access-date=August 9, 2010 |archive-date=February 16, 2011 |archive-url=https://web.archive.org/web/20110216062329/http://www.tax.org/Museum/1861-1865.htm }}</ref> | ||
===Post Civil War, Reconstruction, and popular tax reform (1866–1913)=== | ===Post Civil War, Reconstruction, and popular tax reform (1866–1913)=== | ||
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Income taxes evolved, but in 1894 the [[Supreme Court of the United States|Supreme Court]] declared the Income Tax of 1894 unconstitutional in ''[[Pollock v. Farmers' Loan & Trust Co.]]'', a decision that contradicted ''[[Hylton v. United States]]''.<ref>3 U.S. 171 (1796).</ref> The federal government scrambled to raise money.<ref>{{cite web |url=http://www.tax.org/Museum/1866-1900.htm |title=1866–1900: Reconstruction to the Spanish–American War |publisher=Tax.org |access-date=August 9, 2010 |archive-url=https://web.archive.org/web/20100814151715/http://www.tax.org/museum/1866-1900.htm |archive-date=August 14, 2010 }}</ref> | Income taxes evolved, but in 1894 the [[Supreme Court of the United States|Supreme Court]] declared the Income Tax of 1894 unconstitutional in ''[[Pollock v. Farmers' Loan & Trust Co.]]'', a decision that contradicted ''[[Hylton v. United States]]''.<ref>3 U.S. 171 (1796).</ref> The federal government scrambled to raise money.<ref>{{cite web |url=http://www.tax.org/Museum/1866-1900.htm |title=1866–1900: Reconstruction to the Spanish–American War |publisher=Tax.org |access-date=August 9, 2010 |archive-url=https://web.archive.org/web/20100814151715/http://www.tax.org/museum/1866-1900.htm |archive-date=August 14, 2010 }}</ref> | ||
In 1906, with the election of President | In 1906, with the election of President Theodore Roosevelt, and later his successor [[William Howard Taft]], the United States saw a [[Populism|populist]] movement for tax reform. This movement culminated during then-candidate [[Woodrow Wilson]]'s election of 1912 and in February 1913, the ratification of the [[Sixteenth Amendment to the United States Constitution]]: | ||
{{blockquote|The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.}} | {{blockquote|The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.}} | ||
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From May 22, 2013, to December 23, 2013, senior official at the [[Office of Management and Budget]] [[Daniel Werfel]] was acting Commissioner of Internal Revenue.<ref name="WH press release 2013">[https://obamawhitehouse.archives.gov/the-press-office/2013/05/16/president-obama-appoints-daniel-werfel-acting-commissioner-internal-reve President Obama Appoints Daniel Werfel as Acting Commissioner of Internal Revenue], May 16, 2013</ref> Werfel, who attended law school at the [[University of North Carolina]] and attained a master's degree from [[Duke University]], prepared the government for a potential shutdown in 2011 by determining which services that would remain in existence.<ref name="WH press release 2013"/><ref>{{cite news|title=Daniel Werfel replaces Miller as acting IRS commissioner|url=https://www.washingtonpost.com/blogs/post-politics/wp/2013/05/16/daniel-werfel-to-replace-miller-as-acting-irs-commissioner/|access-date=May 16, 2013|newspaper=The Washington Post|date=May 16, 2013|author=Zachary A. Goldfarb|author2=Aaron Blake}}</ref> | From May 22, 2013, to December 23, 2013, senior official at the [[Office of Management and Budget]] [[Daniel Werfel]] was acting Commissioner of Internal Revenue.<ref name="WH press release 2013">[https://obamawhitehouse.archives.gov/the-press-office/2013/05/16/president-obama-appoints-daniel-werfel-acting-commissioner-internal-reve President Obama Appoints Daniel Werfel as Acting Commissioner of Internal Revenue], May 16, 2013</ref> Werfel, who attended law school at the [[University of North Carolina]] and attained a master's degree from [[Duke University]], prepared the government for a potential shutdown in 2011 by determining which services that would remain in existence.<ref name="WH press release 2013"/><ref>{{cite news|title=Daniel Werfel replaces Miller as acting IRS commissioner|url=https://www.washingtonpost.com/blogs/post-politics/wp/2013/05/16/daniel-werfel-to-replace-miller-as-acting-irs-commissioner/|access-date=May 16, 2013|newspaper=The Washington Post|date=May 16, 2013|author=Zachary A. Goldfarb|author2=Aaron Blake}}</ref> | ||
No IRS commissioner has served more than five years and one month since Guy Helvering, who served 10 years until 1943.<ref name=bloomberg1>{{cite news|title=IRS Commissioner Says He Doesn't Want Second Term|newspaper=Bloomberg|date=April 5, 2012|url=https://www.bloomberg.com/news/2012-04-05/irs-commissioner-says-he-doesn-t-want-second-term.html |last=Rubin |first=Richard }}</ref> The most recent commissioner to serve the longest term was Doug Shulman, who was appointed by President | No IRS commissioner has served more than five years and one month since Guy Helvering, who served 10 years until 1943.<ref name=bloomberg1>{{cite news|title=IRS Commissioner Says He Doesn't Want Second Term|newspaper=Bloomberg|date=April 5, 2012|url=https://www.bloomberg.com/news/2012-04-05/irs-commissioner-says-he-doesn-t-want-second-term.html |last=Rubin |first=Richard }}</ref> The most recent commissioner to serve the longest term was Doug Shulman, who was appointed by President George W. Bush and served for five years.<ref name="bloomberg1"/> | ||
===Deputy commissioners=== | ===Deputy commissioners=== | ||
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|} | |} | ||
[[File:NYC IRS office by Matthew Bisanz.JPG|thumb| | [[File:NYC IRS office by Matthew Bisanz.JPG|thumb|New York City field office for the IRS]] | ||
For fiscal year 2009, the U.S. Congress appropriated spending of approximately $12.624{{spaces}}billion of "discretionary budget authority" to operate the Department of the Treasury, of which $11.522{{spaces}}billion was allocated to the IRS. The projected estimate of the budget for the IRS for fiscal year 2011 was $12.633{{spaces}}billion.<ref>See Table, p. 115, ''Budget of the U.S. Government: Fiscal Year 2011'', Office of Management and Budget, Executive Office of the President of the United States (U.S. Gov't Printing Office, Washington, 2010), at [https://obamawhitehouse.archives.gov/sites/default/files/omb/budget/fy2011/assets/budget.pdf Whitehouse.gov] (PDF)</ref> By contrast, during Fiscal Year (FY) 2006, the IRS collected more than $2.2{{spaces}}trillion in tax (net of refunds), about 44 percent of which was attributable to the individual income tax. This is partially due to the nature of the individual income tax category, containing taxes collected from working class, small business, self-employed, and capital gains. The top 5% of income earners pay 38.284% of the federal tax collected.<ref>{{cite web |url=https://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html#_mti |archive-url=https://web.archive.org/web/20120806062016/http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html#_mti |archive-date=August 6, 2012 |title=SOI Tax Stats{{snd}}Individual Income Tax Rates and Tax Shares |website=irs.gov}}</ref><ref>[http://www.free-press-release.com/news/200710/1191980491.html 'New IRS Data Reveals That the Rich Really Do Pay Tax{{snd}}Lots of It'] by John Gaver. Press Release, Actionamerica.org, October 9, 2007.</ref> | For fiscal year 2009, the U.S. Congress appropriated spending of approximately $12.624{{spaces}}billion of "discretionary budget authority" to operate the Department of the Treasury, of which $11.522{{spaces}}billion was allocated to the IRS. The projected estimate of the budget for the IRS for fiscal year 2011 was $12.633{{spaces}}billion.<ref>See Table, p. 115, ''Budget of the U.S. Government: Fiscal Year 2011'', Office of Management and Budget, Executive Office of the President of the United States (U.S. Gov't Printing Office, Washington, 2010), at [https://obamawhitehouse.archives.gov/sites/default/files/omb/budget/fy2011/assets/budget.pdf Whitehouse.gov] (PDF)</ref> By contrast, during Fiscal Year (FY) 2006, the IRS collected more than $2.2{{spaces}}trillion in tax (net of refunds), about 44 percent of which was attributable to the individual income tax. This is partially due to the nature of the individual income tax category, containing taxes collected from working class, small business, self-employed, and capital gains. The top 5% of income earners pay 38.284% of the federal tax collected.<ref>{{cite web |url=https://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html#_mti |archive-url=https://web.archive.org/web/20120806062016/http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html#_mti |archive-date=August 6, 2012 |title=SOI Tax Stats{{snd}}Individual Income Tax Rates and Tax Shares |website=irs.gov}}</ref><ref>[http://www.free-press-release.com/news/200710/1191980491.html 'New IRS Data Reveals That the Rich Really Do Pay Tax{{snd}}Lots of It'] by John Gaver. Press Release, Actionamerica.org, October 9, 2007.</ref> | ||